The impact of foreign direct investment on productivity: New evidence for developing countries

Chengchun Li; Sailesh Tanna

doi:10.1016/j.econmod.2018.11.028

The impact of foreign direct investment on productivity: New evidence for developing countries

Chengchun Li
, Sailesh Tanna

Changzhou University

Research output: Contribution to journal › Article › peer-review

120 Citations (Scopus)

1865 Downloads (Pure)

Abstract

We provide new empirical evidence on the relationship between inward foreign direct investment (FDI) and total factor productivity (TFP) growth using cross-country data for 51 developing countries over the period 1984-2010. Our results suggest a weak direct effect of FDI on TFP growth but, after accounting for the roles of human capital and institutions as contingencies in the FDI-TFP growth relationship, we find a robust FDI-induced productivity growth response dependent on these ‘absorptive capacities’. However, the relevance of the human capital contingency effect diminishes when the effect of institutions is also considered, which suggests that improving institutions is relatively more important than human capital development for developing countries to realise productivity gains from FDI.

Original language	English
Pages (from-to)	453-466
Number of pages	14
Journal	Economic Modelling
Volume	80
Early online date	1 Dec 2018
DOIs	https://doi.org/10.1016/j.econmod.2018.11.028
Publication status	Published - 1 Aug 2019

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Economic Modelling. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economic Modelling, [80], (2019) DOI: 10.1016/j.econmod.2018.11.028

© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
http://creativecommons.org/licenses/by-nc-nd/4.0/

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

Keywords

Foreign direct investment
Human capital
Institutions
Total factor productivity growth

ASJC Scopus subject areas

Economics and Econometrics

Access to Document

10.1016/j.econmod.2018.11.028

Post-PrintAccepted author manuscript, 1.22 MBLicence: CC BY-NC-ND

Cite this

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title = "The impact of foreign direct investment on productivity: New evidence for developing countries",

abstract = "We provide new empirical evidence on the relationship between inward foreign direct investment (FDI) and total factor productivity (TFP) growth using cross-country data for 51 developing countries over the period 1984-2010. Our results suggest a weak direct effect of FDI on TFP growth but, after accounting for the roles of human capital and institutions as contingencies in the FDI-TFP growth relationship, we find a robust FDI-induced productivity growth response dependent on these {\textquoteleft}absorptive capacities{\textquoteright}. However, the relevance of the human capital contingency effect diminishes when the effect of institutions is also considered, which suggests that improving institutions is relatively more important than human capital development for developing countries to realise productivity gains from FDI.",

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author = "Chengchun Li and Sailesh Tanna",

note = "NOTICE: this is the author{\textquoteright}s version of a work that was accepted for publication in Economic Modelling. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economic Modelling, [80], (2019) DOI: 10.1016/j.econmod.2018.11.028 {\textcopyright} 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ ",

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AU - Li, Chengchun

AU - Tanna, Sailesh

N1 - NOTICE: this is the author’s version of a work that was accepted for publication in Economic Modelling. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economic Modelling, [80], (2019) DOI: 10.1016/j.econmod.2018.11.028 © 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

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N2 - We provide new empirical evidence on the relationship between inward foreign direct investment (FDI) and total factor productivity (TFP) growth using cross-country data for 51 developing countries over the period 1984-2010. Our results suggest a weak direct effect of FDI on TFP growth but, after accounting for the roles of human capital and institutions as contingencies in the FDI-TFP growth relationship, we find a robust FDI-induced productivity growth response dependent on these ‘absorptive capacities’. However, the relevance of the human capital contingency effect diminishes when the effect of institutions is also considered, which suggests that improving institutions is relatively more important than human capital development for developing countries to realise productivity gains from FDI.

AB - We provide new empirical evidence on the relationship between inward foreign direct investment (FDI) and total factor productivity (TFP) growth using cross-country data for 51 developing countries over the period 1984-2010. Our results suggest a weak direct effect of FDI on TFP growth but, after accounting for the roles of human capital and institutions as contingencies in the FDI-TFP growth relationship, we find a robust FDI-induced productivity growth response dependent on these ‘absorptive capacities’. However, the relevance of the human capital contingency effect diminishes when the effect of institutions is also considered, which suggests that improving institutions is relatively more important than human capital development for developing countries to realise productivity gains from FDI.

KW - Foreign direct investment

KW - Human capital

KW - Institutions

KW - Total factor productivity growth

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JO - Economic Modelling

JF - Economic Modelling

ER -

The impact of foreign direct investment on productivity: New evidence for developing countries

Abstract

Bibliographical note

UN SDGs

Keywords

ASJC Scopus subject areas

Access to Document

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